Stocks fall on third day of government shutdown
NEW YORK -- Investors sold stocks across the board Thursday as a U.S.government shutdown dragged into its third day and the nation inched closer to a critical deadline to raise its borrowing limit.
Stocks opened lower and fell steadily throughout the morning.The Dow Jones industrial average slumped nearly 200 points, but later pulled back from its slide.
Investors fretted that Republicans and Democrats were no closer to ending the budget impasse. In a speech, President Barack Obama said there was only one way out of the shutdown: "Congress has to pass a budget that funds our government with no partisan strings attached."
Investors also got some disappointing economic news.
The Institute of Supply Management said that sales fell sharply, new orders dipped and hiring weakened at U.S. service companies. The report covers industries including retail, construction, health care and financial services.
The stock market losses on Thursday marked an acceleration of gradual declines from the last few weeks. Stocks have fallen nine of the last 11 days as investors grow nervous about the political crisis in Washington and the hit to the economy if it continues.
Republicans in the House of Representatives, pushed by a core of tea party conservatives, are insisting that Obama accept changes to the health care law he pushed through three years ago as part of a budget bill. Obama refuses to consider any deal linking the health care law to routine legislation needed to extend government funding.
The U.S. Treasury Department said Thursday that the economy could plunge into a downturn even worse than the Great Recession if Congress failed to raise the debt ceiling and the country defaulted on its debt obligations.
The U.S. missing a debt payment could cause credit markets to freeze, the value of the dollar to plummet and U.S. interest rates to skyrocket, according to the Treasury report.
The head of the International Monetary Fund called it "mission-critical" that the fight over the debt ceiling be resolved as soon as possible. IMF Managing Director Christine Lagarde said if Congress fails to raise the debt ceiling, the consequences could be severe not just for the U.S. but for the global economy as well.
A default "would be so catastrophic and such a self-inflicted wound that you can’t imagine we would let it happen," said Maury Fertig, chief investment officer of Relative Value Partners. "But the fact is that every day we get closer to it the possibility increases, even though it’s remote."
The Dow fell 136.66 points, or 0.9 percent, to close 14,996.48, its biggest decline since Sept. 20. It was down as much as 186 earlier.
The Standard & Poor’s 500 index dropped 15.21 points, or 0.9 percent, to 1,678.66. The Nasdaq composite fell 40.68 points, or 1.1 percent, to 3,774.34.
Stocks pulled back from their some of their losses in afternoon trading after the New York Times reported that House Speaker John Boehner told his party that he wouldn’t let the nation default. The newspaper attributed the news to an unnamed House Republican.
Lawmakers must periodically raise the nation’s borrowing limit to keep U.S. funds flowing, but the once-routine matter has become a bargaining chip in battles over the federal budget deficit.
Despite the slump during the last two weeks, stocks are still close to the record levels they reached last month. The S&P 500 is up 17 percent so far this year, having climbed as much as 21 percent by Sept. 18.
A four-year bull-market for stocks has been sustained by a recovery in the housing market, improving hiring and resilient corporate earnings. Unprecedented economic stimulus from the Federal Reserve has also supported the market.
Some analysts said that investors should take advantage of any decline further price declines and add to their holdings of stocks.
"The probability of the debt ceiling not being raised and the probability of the U.S. defaulting are about as close to zero as you can possibly get," said Scott Wren, a senior equity strategist at Wells Fargo Advisors. "I hope the market takes the bait and we get more of a sell-off here, it’s just an opportunity."
The dollar dropped against the euro and the Japanese yen, continuing a recent slide. The dollar index, which measures the U.S. currency against a group of other major currencies, has declined for five days.
The Labor Department said Thursday it will not release the highly anticipated September jobs report on Friday because the government remains partly shut down.
In government bond trading, the yield on the 10-year Treasury note fell to 2.61 percent from 2.62 percent Wednesday.
Among stocks making big moves:
-- Tesla Motors fell $7.64, or 4.2 percent, to $173.31 after the electric car company had a rare downgrade from a financial analyst and on news of a fire involving one of its cars.
-- HCP fell $1.95, or 4.7 percent, to $39.82 after the real estate investment trust fired James F. Flaherty as its chairman and CEO.
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